Option under GST for Companies facing Cash Crunch

Option under GST for Companies facing Cash Crunch

The companies which have deferred the vendor payments due to the problem of cash shortages in their businesses as a result of the COVID-19 pandemic are further dealing with further cash shortages for meeting working capital demands due to their inability to get credit reversal along with the interest under the GST framework, as they did earlier especially in case they haven’t cleared their dues within 180 days from the date of invoice.

Accordingly, various companies had approached the govt to come up with an answer for the pending delayed payments maintained receipts instead of raising an invoice. The reversal of credits at the top of vendors thanks to non-payment in six months has a corresponding provision of taking credit by the supplier at the top of this sixth month. Industry trackers said in many cases, vendors and corporations would treat the cash they were required to pay to the govt as capital.

However, the govt has come up with the answer to supply aid to such cash strapped companies to either accept the choice to form payments within 180 days or reverse the decrease availed by them along with side the payment of interest @ 18% to the govt from the date of the avail of credit.

In many cases, companies had earlier issued cheque and even had shown this as a payment completed in their books of accounts, so that they might avail of the GST credit. However, because the 180-day deadline comes near many of those companies facing a liquid squeeze are realizing that they'll not be ready to make payments. 

According to tax experts as per the present regulations, if the vendors don't pay GST, the businesses cannot avail of credit.

It has led to the creation of a tendency for companies where such companies have to hold on to the payments until the vendors confirm that to the fact that they have paid GST with the help of a valid proof. Once established, its use should be made in a way that doesn’t specify the burdens of companies directly that intend to specialize in the business perpetuation and looking for effective revival strategies.

Similarly, several vendors have also approached the govt. for their problems and an expectation of assistance for their bad debts or delayed payments, stating the fact that it’s a burden on dual sides for they have already paid their GST and instead haven’t received any cash from Government.


The above provision intending to give an option to the businesses a way out to their problems could prove to be a “blessing in disguise” for the vendors as it tries to encourage timely payment of consideration to vendors and has unfastened an opportunity for businesses during the pandemic.

On the other hand, there is a concern for businesses on the repercussions of the decisions on the interest with delayed payment of consideration, including its application for the backdated period (from the date of availing of the credit)  in a situation where the businesses are already stressed and wasn't even the slightest idea about such impending problems like the pandemic and the liquidity crunch faced by the companies.


eStartIndia Team

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